How long after a short sale before I can purchase?

by Dan Polimino

HUD has issued the following guidelines (ML 09-52) for a homeowner who wants to obtain a FHA mortgage after a short sale or short payoff:

* Borrowers who were current on their mortgage and all installment debts at the time of the short sale ARE eligible for a new FHA mortgage, if the short sale served as payment in full on the mortgage in place.

* FHA will insure a first mortgage where the existing note holder(s) write off the amount of the indebtedness that cannot be refinanced into the new mortgage due to a decline in property values and/or reduction in income.

* Borrowers are NOT eligible for a new FHA loan if they pursued a short sale to take advantage of declining market conditions and purchase, at a reduced price, a similar or superior property within a reasonable commuting distance.

* Borrowers in default at the time of the short sale or pre-foreclosure sale are NOT eligible for a new FHA mortgage for three years from the date of the pre-foreclosure sale.

Conventional mortgages have much longer waiting periods. “Hard money” lenders are also an option. Hard money lenders offer loans to people with poor credit histories. The good news is a borrower does not have to wait to buy. The bad news is at least a twenty-five percent down payment, double digit interest rates, and high fees.